Economics
Chapter 2
Unemployment
Unemployment

A person is unable to find a job although he is able
and willing to work.

Jobless ≠ Unemployed
Employed
population
Labour force
Unemployed
population
Population
Non-labour force
Labour force (The Census and Statistics Department of Hong Kong)
Labour force means
Employed population
1.

All people aged 15 or above who work for payment and
profit.

Including

Self-employed people 自僱人士 (e.g. newspaper stand owner)

Employers 僱主 (e.g. the boss of a company)

Employees 僱員 (e.g. the salesperson of a shop)

Family members working for a family business without pay

Paid apprentices 受薪學徒
Labour force (The Census and Statistics Department of Hong Kong)
Labour force means
Unemployed population
2.

All people aged 15 or above who are jobless

Do not work for payment or profit

Looking for jobs

Able to work anytime.
Labour force (The Census and Statistics Department of Hong Kong)
In short, labour force refers to residents in a region
who are able and willing to work anytime.
Labour force = Employed population + Unemployed population
Non-labour force
Non-labour force means all residents who are not
classified as employed or unemployed.
Including:

People aged under 15

Retirees (no plan to work to earn incomes)

Permanently disabled (incapable to work)

Housewives (no plan to work to earn incomes)

Full-time students (no plan to work to earn incomes)
HK’s situation
At the end of 2010

Population = 7,097,600 (approximate)
Jan – Mar, 2011


Labour force = 3,701,800 (approximate)

Employed = 3,577,300

Unemployed = 124,500
Non-labour force = 3,395,800 (approximate)
Check point (Textbook p.49)
Who is classified as unemployed?
Classified as
unemployed?
Reason
Mr. Chu can’t work permanently after an
accident and relies on the CSSA.
Yes / No
- Unable to work
After university graduation, Miss Chan
works as a private tutor at home.
Yes / No
- Working for
payment
Mrs. Wong, a retiree, provides community
services and volunteer work.
Yes / No
- Not belong to
labour force
Yes / No
- Jobless
- Able and
willing to work
Ted, aged 16, has not been able to find a
job since graduation from secondary school.
Types of unemployment
1.
2.
Frictional Unemployment

a temporary condition.

individual is out of his current job and looking for another job.

The time period of shifting between two jobs is known as frictional
unemployment.
Structural Unemployment:

structural changes within an economy.

mismatch of skilled workers in the labor market.

Individual has


low geographical mobility

low occupational mobility
technological change
Types of unemployment
3.
4.
Classical Unemployment

also known as the real wage unemployment or

disequilibrium unemployment.

when trade unions and labor organization bargain for higher wages,
which leads to fall in the demand for labour.
Cyclical Unemployment:

recession

aggregate demand for goods and services decreases 
demand for labor decreases
Types of unemployment
5.

Seasonal Unemployment:

due to the seasonal nature of the job is known as seasonal unemployment.

e.g. tourism industries, fruit picking industries
Seasonal unemployment in HK


May and July: Unemployment 

A large number of graduates (universities and secondary schools) join the
labour market.

Students seek for part-time job during summer vacation.

Fresh graduates are hard to find work.
September: Unemployment 

Some graduates return back to school for further studies

Part-time students have school re-open
Unemployment rate
𝑼𝒏𝒆𝒎𝒑𝒍𝒐𝒚𝒆𝒅 𝒑𝒐𝒑𝒖𝒍𝒂𝒕𝒊𝒐𝒏
Unemployment rate =
𝑳𝒂𝒃𝒐𝒖𝒓 𝒇𝒐𝒓𝒄𝒆
𝒙 𝟏𝟎𝟎%
Year
Labour force
(thousand)
Employed population
(thousand)
Unemployed
population
(thousand)
Unemployment
rate
2009
3,000
2,850
150
5%
2010
3,200
2,976
224
7%
2011
3,500
3,300
200
5.71%
Unemployment rate in HK
HK Unemployment rate (1997-2010)
Unemployment rate (%)
9.0
2003
8.0
SARS Outbreak
7.0
2003 onward
6.0
CEPA
5.0
4.0
2001
3.0
911 Terrorist Attack
2008
2.0
Financial Tsunarmi
1998
1.0
Financial Crisis
0.0
1997
1998
1999
2000
2001
2002
2003
Year
2004
2005
2006
2007
2008
2009
2010
Underemployment

An employed person

Involuntarily works less than 35 hours a week

Able to work more

Underemployment population 就業不足人口

Underemployment rate 就業不足率
𝑼𝒏𝒅𝒆𝒓𝒆𝒎𝒑𝒍𝒐𝒚𝒆𝒅 𝒑𝒐𝒑𝒖𝒍𝒂𝒕𝒊𝒐𝒏
Underemployment rate =
𝑳𝒂𝒃𝒐𝒖𝒓 𝒇𝒐𝒓𝒄𝒆
𝒙 𝟏𝟎𝟎%
Cost of unemployment

Cost to the unemployed

No income  Low living standard to individual / family

Mental problem


Stress and frustration

low self-esteem

bad family relationship
Unable to accumulate human capital

e.g. experience

Less able to work or find a job

Long-term unemployment
Cost of unemployment

Cost to the society
 Losses in output



Hinder the growth in productivity


Unable to accumulate experience  low productivity
Social / Criminal problems





Labour resources are not fully utilized
Not full employment  No maximum national income
Domestic violence
Divorce
Emotional problem
Theft or other criminal cases
Discourage social harmony

Hostility to the rich
Cost of unemployment
Financial assistance to unemployed / Unemployment benefits

A kind of transfer payment. (not cost to the society)

Unemployment benefits


Increase in gov’t expenses

Social welfare expenses, C.S.S.A.

Subsidies on vocational training

Increase the gov’t financial burden
Decrease in gov’t income

Less salaries tax revenue
Inadequacy of unemployment rate

The unemployment rate can’t fully reflect changes in
economic welfare.

Unemployment rate over-estimates the problem if

False report of unemployment


Value of leisure time


Unemployed  more leisure time  beneficial
Frictional unemployment


Some people may give up job for financial assistance
Looking for better job
Unemployment rate under-estimates the problem if

Underemployment

Unemployment rate can’t show the problem of underemployment
Should the gov’t increase unemployment assistance?



Individuals

For: Unemployed can have wealth redistribution  Better living

Against: Taxpayers need to share higher tax burden
Society

For: Fewer personal / family / social problems

Against:  incentive to report unemployment
Economy

Against:  incentive to work or find a job
 tax rate to support financial assistance
 cost of investigation
Questions on unemployment

Which of the following is regarded as unemployment?
A.
Ken is a full-time student.
B.
Fanny is unable to find a job after quitting her previous position.
C.
Frankie is not looking for a job because he is permanently disabled.
D.
Siu Mei is working in a family tuck shop without pay.
Answer: B

Which of the following belongs to the labour force?
A. A retiree.
B. A full-time housewife.
C. A university graduate who is jobless and has been looking for a job since
graduation.
D. A student who studies in Japan returns to Hong Kong during the holidays.
Answer: C
Questions on unemployment
Study the following data about employment in an economy:
Employed
Number (thousand)
900
Unemployed
100
Under-employed
70
Calculate the unemployment rate and the underemployment rate.
Answer:
The unemployment rate =
=
𝑼𝒏𝒆𝒎𝒑𝒍𝒐𝒚𝒆𝒅 𝒑𝒐𝒑𝒖𝒍𝒂𝒕𝒊𝒐𝒏
𝑳𝒂𝒃𝒐𝒖𝒓 𝒇𝒐𝒓𝒄𝒆
100
𝒙
900+100
The underemployment rate =
=
𝒙 𝟏𝟎𝟎%
𝟏𝟎𝟎% = 10%
𝑼𝒏𝒅𝒆𝒓𝒆𝒎𝒑𝒍𝒐𝒚𝒆𝒅 𝒑𝒐𝒑𝒖𝒍𝒂𝒕𝒊𝒐𝒏
𝑳𝒂𝒃𝒐𝒖𝒓 𝒇𝒐𝒓𝒄𝒆
70
𝒙
900+100
𝟏𝟎𝟎% = 7%
𝒙 𝟏𝟎𝟎%
Questions on unemployment

If the underemployed population decreases and the labour force increases,
which of the following conclusions can we draw?
(1) The unemployed population will increase.
(2) The underemployment rate will decrease.
(3) The unemployment rate will decrease.
A. (2) only B. (3) only
C. (2) and (3) only
D. (1), (2) and (3)
Answer: A

If the employed population decreases and the labour force increases,
(1) the unemployment rate must increase.
(2) the unemployed population must increase.
(3) the underemployment rate will decrease.
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)
Answer: A
Questions on unemployment

John plans to quit his job and further his studies. Explain whether he will be
classified as unemployed. (2%)
Answer:
Unemployment refers to a person who is willing and able to work but
does not find a job. (1%)
John is not unemployed because he is not going to find a job. (1%)

John is unemployed and is receiving unemployment benefits. Explain
whether unemployment benefits are the cost of unemployment to society.
(2%)
Answer:
No. Unemployment benefits are only a kind of transfer payment. (1%)
John receives the money that is paid by the government. Society as a
whole does not bear any cost. (1%)
Questions on unemployment

a.
b.
The following is the data of a country.
Year
The employed
The underemployed
The
unemployed
The unemployment
rate
2007
9,000
500
750
7.7%
2008
9.200
450
800
8%
2009
10,500
300
1,500
12.5%
Fill in the blanks in the table. (3%)
State TWO costs of unemployment to society. (4%)
Answer:
- Reduced social output.
- Reduced overall human capital accumulation, leading to slower in
productivity growth of the economy.
- Increased crime rate.